NCGA details issues with Dow-DuPont Merger

Date:07-22-2016

As the National Corn Growers Association(NCGA) meets for its Corn Congress in Washington, D.C., this week, the group has weighed in with a letter late last week to Renata Hesse, a deputy assistant attorney general in the antitrust division at DOJ regarding the Dow-DuPont merger.

Dow and DuPont are wading through the regulatory approval of a $130 billion merger that would lead to potentially three different divisions, including an agricultural spin off of a combined seed and chemical company that would have about $19 billion in annual revenues combined.

NCGA President Chip Bowling, who signed the letter for the corn growers, noted the merger and others like it are going on in the middle of some challenging times for farmers. The letter cited USDA figures showing farm income has fallen 55% since 2013 while debt-to-asset ratios are rising.

NCGA's board of directors brought in experts to discuss the potential impact of the Dow-DuPont merger to examine areas where Dow and DuPont overlap and could lead to some future concentration issues as well. NCGA also wanted to know the benefits for farmers from the merger and steps that could be taken to avoid adverse effects on input pricing.

Among the top concerns, NCGA stated to Justice officials that "We are concerned with increased seed market concentration resulting from this merger." The group's analysis stated the merged company would not have a concentration problem in the herbicide or insecticide markets, based on an index used for such measures called the Herfindahl-Herschman Index. However, the H-H Index scores conclude that the Dow-DuPont merger would lead to high market concentration in the seed-corn market.

"This increase in market concentration does cause us significant concern that seed industry competition could be diminished as a result of this merger," NCGA wrote. "We would ask the Department to carefully evaluate the seed market impacts to determine whether remedies should be applied that could ensure healthy competition within the corn seed market."

NCGA did state that "Synergy and innovation stemming from the merger can benefit farmers." The group stated that DuPont-Pioneer's strength is in germplasm development and seed distribution while Dow has strong development in the trait side of things in biotechnology. So while NCGA is concerned about concentration, the corn growers also see some strength in what Dow and DuPont might be able to do together in the seed sector. Dow and DuPont combined might also be able to offset some of the dominance by Bayer and Syngenta in the chemical markets as well.

NCGA's letter also cited the global problems facing market access and price for seed and chemical businesses. Companies face an increasing array of hurdles to get a new seed trait or chemical to the market. Thus, it demands larger capital requirements for companies just to be in these businesses.

"These issues may not be directly on?point with the Department's merger analysis, but these issues are certainly relevant to the global business environment driving consolidation within the agribusiness sector," NCGA noted.